Figuring out Indonesia’s tax rules can be tough for foreign professionals working in the country. However, understanding the available tax exemptions can significantly ease this burden.
This guide will explain the criteria and steps to apply for tax exemptions, helping you follow the rules while making the most of your tax benefits.
Criteria for Tax Exemption for Foreigners
According to Indonesian Government Regulation No 55 in 2022, foreign nationals with specific expertise who have become domestic taxpayers and hold certain positions or are foreign researchers, can be taxed only on income received from Indonesia.
This means that if a foreign national receives income from outside Indonesia, that income is exempt from taxation in Indonesia. Minister of Finance Regulation No 18 in 2020 lists 25 types of positions that can be eligible for this tax exemption.
These positions include chemists, software developers, urban and traffic planners, aviation safety electronic device technicians, and university lecturers. Certain expertise criteria must be met, namely:
- Foreign citizenship
- Expertise in the fields of science, technology, and/or mathematics. This can be proven with a certificate of expertise, educational qualifications, and/or at least 5 years of work experience.
Here are some examples of specific positions that may qualify for tax exemption in Indonesia:
* Scientists in various fields, such as biology, chemistry, physics, etc.
* Engineers in fields like software development, civil engineering, electrical engineering, etc.
* Researchers in academic or industrial settings
* Technicians in specialized fields, such as aviation safety, medical technology, etc.
* University lecturers in fields relevant to science, technology, or mathematics
* Experts in fields like urban planning, traffic management, or environmental science
In addition to the two requirements above, foreign nationals have an obligation to transfer knowledge to be eligible for this facility. Note that this facility can be used for a period of 4 years from the time the foreign national becomes a domestic taxpayer.
How to Apply for Tax Exemption
To apply for an exemption from tax on income received from outside Indonesia, foreign nationals must submit a request to the Director General of Taxation.
In addition to the application letter, there are several documents that must be attached to the application, including:
- A copy of the Work Permit for Foreign Workers (RPTKA) that has been certified by the minister in charge of manpower affairs or a research permit issued by the minister in charge of research affairs, which contains information about the applicant.
- The applicant’s Tax ID.
- A copy of a valid passport.
- A copy of a valid visa or limited stay permit.
- A certificate of expertise, educational qualifications, and/or a statement of at least 5 years of work experience.
A letter of approval or rejection will be issued no later than 10 working days from the date the application is submitted. If approved, the tax for foreign nationals is calculated from the income received from Indonesia only, and this income must be reported in the annual tax return by the end of March.Â
Tax Implications for Approved Tax Exemption
If a foreign worker receives tax exemption on their income earned within Indonesia, they are still generally responsible for paying taxes on their income earned outside of the country in their home country’s tax jurisdiction.
Their income tax will be calculated based on the provisions of PPh 21, the same as Indonesian workers. PPh 21 is a progressive income tax levied on individuals residing in Indonesia. It applies to salaries, wages, and other forms of employment income. The tax rate increases as the taxable income rises.
If you feel lost navigating this tax system, make tax compliance stress-free with the help of Seven Stones Indonesia. Our comprehensive tax services cover everything from registration to tax planning and filing, ensuring that you meet all legal requirements while optimizing your tax situation.
Let our finance expert team guide you through every step of the process. Contact us today to learn how we can simplify your tax obligations and help you succeed in Indonesia.
